This article was written MCN public policy director Marie Ellis and originally published in the Fall 2022 issue of Nonprofit News. Read the full issue.
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MCN welcomes changes to prevent and properly prosecute fraudulent activity, but we have strong concerns that legislators in the upcoming session may overcorrect in ways that are actually harmful to nonprofits’ work.
During the 2022 legislative session, a provision was proposed and included in an omnibus bill that would have prevented many small Minnesota nonprofits from receiving state funds for at least two years, and would have required them to complete costly audits every year after. MCN and our advocacy network vehemently advocated against this proposal (props especially to the Living at Home Network for their effective advocacy!), was able to stop the provision from becoming law.
We expect to see many provisions in 2023 that are aimed at ensuring the state’s dollars are used properly. If 2022 was any indication, those provisions will likely include increased administrative reporting burdens on nonprofits who are already regulated by a number of stakeholders and for whom public financial information is readily accessible (MN State Attorney General’s Office, IRS Charity Lookup, IRS Masterfile of Exempt Entities, Candid.org, etc.). If provisions are developed without input from nonprofits or with consideration of how nonprofits will be impacted, it’s likely the provisions will be at best ineffective and at worst harmful.
How the state oversees grants to nonprofits will be a major discussion at the Legislature. There are two main reasons why.
First, the state’s Office of the Legislative Auditor, an entity that provides the legislature with objective audit and evaluation reports, has announced a forthcoming report in early 2023 focusing on the extent the state has established comprehensive policies for administering grants to nonprofits.
The report is not evaluating nonprofits’ use of dollars, but rather the state’s oversight of those dollars through state agencies like the Department of Human Services, Department of Employment and Economic Development, MnDOT, and others. The report will include recommendations for changes to how state agencies administer grants – we are hopeful this report will highlight some best practices that agencies can adopt, and call out practices that should be long gone like retroactive reimbursement payment structures that pose barriers for nonprofits who cannot afford up front costs.
Second, we expect to see legislation proposed in response to the immense fraud that is part of the Feeding Our Future scandal. We are genuinely looking forward to working with lawmakers to streamline application and reporting processes in 2023. The attention on these practices could be a great opportunity to remove or lessen barriers to government funding. At the same time, we are concerned that lawmakers will go overboard in their attempts to ensure “perfect” procedures and compliance, creating undue burdens on nonprofits. We will need you to advocate with us against these proposals!
To prepare, let’s look at one part of how the state oversees nonprofits: the life cycle of a state grant to a nonprofit here in Minnesota.
The grant is born long before we see the Request for Proposals! At some point, advocates tell the legislature that certain funding is needed and the legislature takes action. These advocates could be constituents (people who live in a legislator’s district), staff at state agencies, and you, nonprofit staff! This is why we’re always urging you to get to know your legislators – nonprofits informing policymakers about needs in the community is vital to this process. The legislature does its thing and a successful end result is a state statute, or law, that authorizes an agency to administer the funds (have oversight of), and appropriates (gives) funds to an agency. Sometimes funds are allocated for a certain purpose, but not designated to specific organizations. Sometimes an organization is directly named in the legislation, in which case the statute authorizes the grant directly to that organization and directs an agency to appropriate the funds. And sometimes a state agency is actually a pass-through for federal funds that have nothing to do with state legislation.
Let’s look at the first option where state statute authorizes an agency to administer funds for a certain purpose, the most common way the state administers grant dollars to nonprofits. Okay, the agency has the money and approval to use it and a lot of discretion as to how they do so. Staff at the state agency determine logistics of the grant and seek applications through a competitive process by putting out a Request for Proposals (RFP).
In general, the ultimate grantee of these funds does not have any input on how the law is written, what questions are on the application, the criteria a nonprofit must meet to be eligible, how outreach is done, criteria for selecting grantees, or the metrics by which success will be measured. Imagine a world where nonprofit staff who will be doing the work of the grant are consulted by the legislature and the state agency about those pieces. Easier said than done, certainly, but MCN will continue to push the state in that direction.
A 2007 OLA report found that the state grants system was “fragmented and inconsistent” and did not provide “adequate accountability” and oversight of nonprofits. As a result of that report,
the state created the Office of Grants Management (OGM), which has a goal of “standardizing, streamlining, and improving” the state’s grantmaking practices. However, the vast majority of the grantmaking systems across state government remain decentralized. The result is that it’s difficult to say the state’s grant system works a certain way, because agencies have disparate practices. One agency could have a very simple application, while another requires unnecessary and lengthy information. More often than not, agencies also decide on their own reporting requirements, which even with the best of intentions can be burdensome or fail to capture the full story of the nonprofit’s work.
There are also pieces that agencies do not have discretion over. For example, each agency must comply with the OGM’s policy of reimbursement as the preferred form of payment. OGM policy is that advanced payments can only be made if the state agency is “confident that the grantee will be able to account for the grant funds.”
This OGM policy negatively impacts small nonprofits, new nonprofits, and nonprofits that have not sought state funding before. This work is not easy for state agencies either, which are dealing with shifting fiscal challenges they can’t control, changing political dynamics, and a complex web of external state and federal requirements.
As you can see, how the state partners with nonprofits through grants and contracts is complicated. How we advocate for or against change to this process is also complicated, with decisions being made at the legislature, at the Office of Grants Management, and at each separate state agency.
Looking at the 2023 legislative session, we expect a few legislators to dive into the deep end on these issues, and MCN with our advocacy network will be there (with your support!) with information, guidance, and input from the nonprofit sector. Other legislators will propose blanket measures that would create harm to nonprofits, seeking
a headline rather than nuanced changes.
Our nonprofit sector is unusual in that we welcome outside oversight of our work – we need the trust of the community and of government in order to advance our missions. We want clear rules, boundaries, and guidelines so that we can demonstrate that we’re abiding by them carefully. And yet, we are a varied sector. The oversight for a $10,000 state contract does not need to be the same as that for a $10 million contract.
MCN will be back at the Capitol this coming session, amplifying your ideas and concerns, proposing positive changes, and advocating against harmful legislation to nonprofits that may arise. Thank you for your partnership in advocacy so that we can ensure upcoming reforms are done in a way that support nonprofits and don’t create more barriers to accessing critical government funding.